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The Bank of England will aim to shift £10 billion worth of gilts when it begins government bond sales before the end of next month, the central bank said on Thursday.
The BoE in February decided to reduce its holding of UK government bonds. It decided then to not reinvest maturing assets. This means the government bond stockpile under its asset purchase facility stood at £844 billion on Wednesday, having been as high as £875 billion.
‘The committee judged that, over the first twelve months of a sales programme starting in September, a reduction in the stock of purchased gilts held in the [asset purchase facility] of around £80 billion was likely to be appropriate,’ the bank said Thursday.
Considering the maturity profile of some of the gilts, the BoE said it would imply a sales programme sized at £10 billion per quarter.
The BoE in May had promised to update on quantitative tightening plans at this meeting.
It enacted its largest rate hike for almost 30 years on Thursday, as it bids to cope with inflationary pressures which have ‘intensified significantly’ this summer.
But accelerating inflation is coming at the expense of economic growth, and the central bank expects the UK to enter into recession later this year.
The benchmark bank rate has been increased by half a percentage point to 1.75% from 1.25%. It is the biggest rate rise since 1995. Eight members supported the hike, while one, Silvana Tenreyro, preferred the BoE to extend its streak of smaller 25 basis point rate rises instead.
The UK central bank lifted its consumer price inflation outlook to ‘just over 13%’ in the fourth quarter of 2022, compared to the 9.4% forecast in its May report.
Inflation will ‘remain at very elevated levels throughout much of 2023, before falling to the 2% target two years ahead’.
While inflation is accelerating, economic growth is slowing and gross domestic product will decline. The BoE projects the UK to enter recession ‘from the fourth quarter of this year’.
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